Exhibit 1
The Board of Directors
ICN Pharmaceuticals, Inc.
ICN Plaza
3300 Hyland Avenue
Costa Mesa, CA 92626
26 June, 2000
Gentlemen,
ICN PHARMACEUTICALS, INC.
On 13 June 2000, we wrote to the Board of ICN proposing that the Company be
divided into three separate and completely independent companies in order to
close the gap between the market value of the Company and its underlying value.
It appears that this letter was not circulated to all the directors, so we are
sending you personally a copy herewith.
ICN's Board announced its own strategic restructuring plan on 15 June 2000, and
this resulted in ICN's shareholders losing over $ 700 million of market value in
a single day. In view of the catastrophic consequences for ICN's shareholders,
it is surprising and regrettable that the Board as a whole was not given the
opportunity of considering our alternative proposal prior to the announcement
being made.
Immediately prior to ICN's restructuring plan being made public, the Chairman of
ICN was quoted by the Wall Street Journal as saying that ICN's Board "voted
unanimously" to adopt the Company's proposal(1) but it was later reported that a
number of key features included in the official Press Release and S-1
Registration Statement (such as the composition of the Board of the subsidiary
companies, including Mr Panic's role, and the designation of management) were
not in fact approved by the Board(2). If what was reported is true, this would
constitute a false statement. In view of the fact that the Company and its
Chairman are currently being investigated by the SEC in connection with prior
public statements, we are astonished at what appears to be a recurrence of this
problem.
You will no doubt appreciate that the above two "incidents" could lead
shareholders to being concerned at whether or not the Board as a whole is
totally in control of the situation, and questioning whether it is functioning
properly and fully performing its fiduciary obligations.
As indicated both in the ICN Indenture and the Ribapharm S-1 Registration
Statement filed with the SEC, ICN's Senior Noteholders will need to provide
their consent prior to the transfer of the Schering Plough License Agreement
from ICN to Ribapharm. In view of the fact that the Noteholders could refuse to
permit the transfer of the royalty stream to Ribapharm (and are unlikely to give
up their principal source of cash flow very easily), we believe that the
announcement of ICN's restructuring plan was made prematurely, and
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(1) See WSJ 15 June 2000 "Investor in ICN Suggests Dividing Drug Firm into Three
Companies".
(2) See Los Angeles Times 16 June 2000 "ICN Announces Restructuring - Stock
Plunges".
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apparently in some haste, even though the advisors spent four months devising
it. Once again, questions could be raised about the way in which the Company's
affairs are being conducted.
The terms of our proposal are included in the attached copy of our letter dated
13 June 2000 and may easily be compared with ICN's restructuring plan.
Superficially, SSP's proposal bears certain similarities to ICN's restructuring
plan in that the three "building blocks" are broadly the same. However, there
are some key differences:
1. Under ICN's proposal, ICN would continue to own and control a
majority of the newly formed subsidiaries, whereas in our proposal
the subsidiaries would be totally independent;
2. Under ICN's proposal, the Chairman would be chairman of the parent
company and its two subsidiaries, whereas in our proposal the
Chairman would cease to be associated with two of the three
entities;
3. Under ICN's proposal, the two subsidiaries would continue to be
fully consolidated, whereas in our proposal the spun-off companies
would be totally separate entities; and
4. Under ICN's proposal, ICN would continue to be fully exposed to
Eastern Europe.
Fundamentally, we believe that ICN's proposal changes nothing, other than
allowing the Company to raise a relatively small amount of new equity on a
one-off basis (further equity cannot be issued by Ribapharm, or shares sold,
without jeopardising the possibility of a tax free spin-off in the future). We
have informally exchanged views on this question with a number of analysts,
investment bankers, financial journalists and other shareholders - and they are
unanimous in holding the same opinion as we do.
Clearly, ICN's proposal would very closely resemble SSP's proposal if the
decision were taken immediately to spin-off the remaining 80.5% of Ribapharm and
ICN International.
Unfortunately, with respect to Ribapharm, we do not see how a tax free
distribution could be achieved with immediate effect or even, say, within one
year, and this is reflected in statements included in the S-1 Registration
Statement. If this result were intentional, it would simply underline our
concern that ICN's Board has no serious intention of changing the status quo.
If, however, a 100% spin-off of Ribapharm were to be proposed (and assuming it
is feasible), a structure would need to be found which would guarantee to
investors that the spin-off will definitely occur within a specific period of
time. Otherwise the market will simply take a "wait and see" attitude and the
share price will not reflect the change until it actually happens. This is why
the spin-off needs to be immediate, or as close as possible.
The availability of a tax free spin-off appears to us to be far more likely with
respect to ICN's Specialty Pharma division(3) and ICN International, and the
quantity of tax payable far smaller - and perhaps even negligible in the case of
ICN International - if (by chance) a tax free treatment were not available.
This is why we chose to spin off these two entities, leaving "Ribapharm" as the
surviving entity.
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(3) As defined in our proposal, the Specialty Pharma division includes the North
and South American pharmaceutical business but excludes royalties and R&D. This
division is effectively the same as what would be left in ICN if ICN
International and Ribapharm were to be wholly spun-off.
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ICN's share price may rise again on the back of short term speculative demand,
particularly if the market starts to believe that SSP's proposal has a chance of
being implemented. But we believe that it will not rise on a sustainable basis
until the fundamental causes of the undervaluation are addressed and irrevocable
commitments are made in this respect.
The market's reaction to ICN's proposed restructuring was predictable and could
not have been clearer. The investment community was led by ICN to expect that
radical change would be implemented and was not deceived by what it (correctly)
views as a mostly cosmetic solution(4).
Yours sincerely
Dr Tito Tettamanti Eric Knight
Chairman Managing Director
cc: Mr Benjamin D. Lorello
Head of Healthcare Corp. Finance
Warburg Dillon Read LLC
299 Park Avenue
New York, NY 10171
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(4) See, for example, WSJ 16 June 2000 "Investors Pan ICN's Proposal to Split
Up" and Los Angeles Times 16 June 2000 "ICN Announces Restructuring - Stock
Plunges".
